Solar Sector Gains 16% in Two Days: Blame Buffett

By Brendan Conway

The solar sector could be viewed as the clearest sign that the riskiest stuff is rising the fastest right now. Which is mostly true. But there’s another factor at play.

Associated Press

Buffett is here! Buffett is here! Sort of. Okay, not really.

The Guggenheim Solar exchange-traded fund (TAN) is up an astounding 16% over two days, including a nine percent surge today (Thursday). The Market Vectors Solar Energy ETF (KWT) is doing even better, rising 17%. First Solar (FSLR), one of the best-known battered solar shares, is up by nine percent today for a nearly 13% rise during 2013′s two trading sessions.

One reason is SunPower Corp. (SPWR), which is soaring 42%. The company on Wednesday announced the sale of its 579-megawatt Antelope Valley Solar Projects in Cailfornia to MidAmerican Solar, a subsidiary of MidAmerican Renewables, which is part of Warren Buffett’s Berkshire Hathaway (BRKA, BRKB), for as much as $2.5 billion.

You can just hear the shrieks of investor joy: Warren Buffett is buying into solar! Except that that’s not quite right. At least not judging by Wednesday’s news. A subsidiary picked off an asset from one of the hobbled sector’s companies.

Also helping SunPower’s today: The firm scored an investment-rating update from Lazard Capital, to “buy” from “neutral.” Lazard’s Sanjay Shrestha’s Jan. 3 note doesn’t wade into the MidAmerican deal, instead arguing that the company is an “abandoned name” even though it enjoys strong sales visibility and upside to Wall Street’s earnings estimates.

Raymond James’ Pavel Molchanov, meanwhile, isn’t convinced. He keeps his “underperform” rating on SunPower and predicts a “hefty” correction once the good feeling wears off:

Bottom line. Yes, we get it. The market is in a good mood after the fiscal cliff deal – so the high-beta solar space is back in vogue (sort of). Plus, SunPower got a proverbial pat on the back from Warren Buffett. But really – 15x EBITDA? In our view, no PV manufacturer, or project developer, should be trading at anything close to 15x EBITDA. Once the market figures out that the $2.5 billion is not actually the windfall it’s made out to be, we think the stock is due for a hefty correction.

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